INTRODUCTION
Nigerian Tax laws and issues are purely statutory; therefore, it would be incongruous for any tier to seek to impose any form of tax on subjects, belt person or property, beyond its legislative competence. The simple meaning of this is that Nigerian tax system originated from law and any tax levied on the people must be backed by law. Any levy whatever name it is called not backed by law is not a tax. The tax system thus features a wide and mixed range of statutes by which the various governments in the country seek to charge and collect revenue for public expenditure.Tax is said to be a compulsory exacting of money by the government for public purpose
The federal government has been given power to legislative power in respect specific tax listed above, the state governments have what is technically called the residuary taxing powers, in other word the state government can only legislate on items not specifically given to the federal government. Taxing power must broadly follow the division of legislate powers under the constitution. Consequently each level of government can impose tax in respect of any of the items that it has power to legislate upon under the 1999 constitution as amended. What this means is that since the 1999 constitution distribute legislative functions to federal and state governments, local government have no legislative function and so cannot legislate on any taxing matter excerpt if such were delegated to it by the state house of assembly. Federation implies the existence in one country with more than one level of government, each with different expenditure responsibilities and taxing powers. In Nigeria, this consist of a federal government, 36 states, a federal capital territory and 774 local governments. The fiscal arrangement among the different tiers of government in a federal structure is referred to as fiscal federalism. Thus, fiscal federalism refers to the allocation of tax raising powers an expenditures responsibilities between the levels of government. In a country with federal government, the different levels or tiers namely, the federal, state and local government are deemed to be autonomous and should enjoy some level of independence in their area of competence.
HISTORY OF TAXING POWERS IN NIGERIA
The federal and state taxing powers should not be made in complete isolation from the legal history of the processes which culminated in the recognition and adoption of the rationale of the basis and structure for the demarcation of taxing powers between the federal and state Government within the Federation of Nigeria. Certainly, a brief discourse upon the past not only explains the origins of the present system, but also gives a clearer insight into the concepts and reasoning that have underlined our structure of the demarcation of the tax jurisdiction historically, when Nigeria became a federation in 1954, the issue of sharing of taxing powers between the Regions and the federal government immediately arose. According to Ayua 1996, the question was discussed at the Nigeria constitutional conference in London in 1957. At that conference it was decided that the issue be referred to a Commission. Consequently, the Raisman commission was inaugurated to look into the issue of how to allocate taxing powers between the Regional and Federal governments and make recommendation that would ensure an equitable tax distribution. Earlier in 1951 and 1953, two commissions were set up; they were the Hicks Phillipson Commission of 1951 and Sir Louis Chick Commission of 1953. In its composite recommendations Hicks Phillipson laid down amongst others, the principle of independent revenue with a view to making the regions within the newly established federation more financially self-reliant. While sir Louis recommendations to a larger extent reflected in the Section 155-163 of the 1954 constitution order-in-council. Raisman commission report was submitted in June, 1958, the proposals of his commission in relation to the division of taxing powers between the tiers of government had strong influence on the relevant provisions of the Nigerian Constitution Order-in Council, 1960. Section 70 of the 1960 Independence Constitution.
The provisions of section 70 above were transcribed unto the Legislative List in the Schedule to the said Constitution of Nigeria 1960 accordingly. And this trend of laws continue to evolve in our different constitution and law, till the 1999 constitution a amended.
DEFINITION OF TAXING POWER
Taxing power is the power and authority by a tier of government to impose and collect taxes from the citizenry in that particular state. According to Abiola (2002), taxing power is the power of a level of government to impose a tax by its own law and prescribe conditions for the collection and due administration of the tax either by its own agency or that of another level of government. In other words, power is the ability of government to levy tax or raise revenue through taxation. The power is said to have its origin in the implied common law powers of government and that such power “ought to know no bounds than the exigencies of the nation and the resources of the community. This power has been variously described as an imperious necessity of all governments, which ought not to be restricted by merely legal friction”, “not dependent upon the consent of the individual taxpayer. A power to tax is the ability or power of any government to levy tax or raise revenue through taxation. The power to tax is conceived as being inherent in sovereignty and essential to the existence of independent government. It is a right that resides in the government as part of itself and is co-extensive with that to which it is incident.What saying am saying here is that, tax can only be levied by a recognized government? Tax exhibit sovereignty and it is the responsibility of government and not individual to impose. The most significant aspect of taxing power is that, such power must be constitutionally derived. A tax power is not a mere power to collect taxes or levies because such powers is executive or administrative, but instead a statutory ground to impose tax. Any imposition and collection of tax outside the jurisdiction of tax statute or that is devoid of the state legislative arm approval is a self-ascribed taxing power which to that extent is null.
BASIS FOR TAXATION IN NIGERIA
Section 44 (2) (a) of the 1999 Constitution provides that: “Nothing in subsection (1) of this Section shall be construed as affecting any general law for the imposition or enforcement of any tax…”9. Thus the compulsory imposition of tax on a citizen is not a derogation from the right of the citizens to his property, but a necessary exercise of governmental powers. These powers to make laws for the imposition of tax are vested by virtue of Section 4(2) of the constitution on the National Assembly. Section 4 of the constitution shows that taxes on income, profits or capital gains and stamp duties are exclusive to the National Assembly. Only the National Assembly can legislate on the imposition, collection and administration of any tax or duty envisaged under item 58, and 59 of the exclusive legislative list”.
Notwithstanding, the National Assembly may by an Act “provide that the collection of any (of the aforementioned) tax or duty or the administration of the law imposing it shall be carried out by the government of a state or other authority of a state. The house of assembly of a state may without prejudice to the powers conferred on the national assembly “make provision for the collection of any tax, fee or rate or for the administration of the law providing for such collection by a local government council”. Therefore, any tax emanating from such properly enacted legislations have the force of law.
DISTIBUTION OF TAXING POWERS
In a federal system, a constitution may distribute taxing powers among the federating units using numbers of expedients. The distribution goes, for example the general distribution of legislative powers, or specific taxes may be named and allocated to a tier of government, or the power to legislate may be given to one tier of government while the power to collect goes to another, or there may even be three levels where one tier legislates, another collects and the third is actually the beneficiary of the tax. What the 1999 constitution has done is to utilize these different modes of allocating taxing power. Second schedule to 1999 constitution reveals that in the exclusive legislative list in part I, the federal government has authority to legislate on certain taxes, such as customs and excise duties, export duties, stamp duties, taxation on incomes, profit and capital gains excerpt as otherwise as prescribe by the constitution.
The federal government has been given power to legislative power in respect specific tax listed above, the state governments have what is technically called the residuary taxing powers, in other word the state government can only legislate on items not specifically given to the federal government. Taxing power must broadly follow the division of legislate powers under the constitution. Consequently each level of government can impose tax in respect of any of the items that it has power to legislate upon under the 1999 constitution as amended. What this means is that since the 1999 constitution distribute legislative functions to federal and state governments, local government have no legislative function and so cannot legislate on any taxing matter excerpt if such were delegated to it by the state house of assembly.
FEDERAL TAXING POWER
Distribution of the taxing powers between the Federal and State Governments remain relatively constant except for a few deviation during the military Administration of Jan 1966-Sept 1979. Going by the tax jurisdiction as demarcated under the 1960 independence constitution, 1963 Republican constitution, 1999 constitution, the federal government has taxing powers to taxing on;
I. Import duties ii. Export duties
iii. Excise duties iv. Mining Rents and Royalties
v. Companies Income Tax VI. Capital Gain Tax
vii. Personal Income Tax viii. Petroleum Profit Tax ix. Sales and Purchase Tax
However, from 1979, all vital matters subject to tax are kept within the exclusive control of the Federal Government most likely with a view to avoiding competing and conflicting tax jurisdiction. The taxing power of the Federal Government is spelt out in sec 4 (2) of the 1979 constitution. According to the section, The National Assembly shall have power to make laws for the peace, order and good government of the federation or any part thereof with respect to any matter including in the Exclusive Legislative List set out in part 1 of the second schedule to this constitution. Going by the schedule to the Taxes and Levies (Approved list of collection), Decree No. 102, 1993, there seems to be multifarious taxes in Nigeria, however in the Exclusive legislative List, only four of them are specifically mentioned by name. the four as stated in the second schedule of the CFRN, 1999 are:
i. Customs duties in the item 16
ii. Excise duties also in item 16
iii. Export duties in the 22nd item, and
iv. Stamp a duty which is in the 58th items.
In addition, item 59 of the Exclusive legislative list vests the Federal government with powers on “taxation of incomes profits and capital gains pursuant to which the personal income tax, companies income tax, petroleum profit tax and capital gain tax have been imposed (The simple implication of this is that, from 1979, the federal government of Nigeria can impose tax on any of the 67 subject matters on the exclusive legislative list pursuant to its implied power in item 68. This position was affirmed by the Supreme Court of Nigeria in the case of the Attorney General, Ogun State Vs Alhaja Ayinke Aberuagba The main reason for given so much power to the federal government may be to avoid competing and conflicting tax jurisdiction, or to aid the federal government’s higher generation of revenue in order to be able to meet the socio-economic responsibility of the central government.
State Taxing Powers
Unlike the federal government, no tax is specifically reserved for the state government under the 1999 constitution. The only reference in the constitution to the powers of state governments in relation to taxation is contained in item D-9 and 10 of the Concurrent Legislative List in the CFRN, 1990.
However, going by the provision of section 4 (7) of the 1999 constitution of the Federal Republic of Nigeria, which provides for the legislative powers of the state House of Assembly, it could be deduced that, save items listed in the Exclusive Legislative List in the second schedule of the constitution, the state can legislate including the levying of tax on matters in the concurrent legislative lists and others not clearly mentioned therein. Going by section 4 (7), the House of Assembly of a state shall have power to make laws for the peace, order and good government with respect to the following matters that;
a. Any matter not included in the Exclusive Legislative list in the second schedule to this constitution;
b. Any matter included in the concurrent legislative list set out in the first column of part II of the second schedule to this constitution to the extent prescribed in the second column opposite thereto and
c. Any other matter with respect to which it is empowered to make laws in accordance with the provisions of this constitution.
It is clear from the above provisions, that as the state governments have powers to make laws on matters in the concurrent legislative list, so also it has plenary powers to make laws on any subjects matter that is not on either the Exclusive or concurrent legislative list. A federal law on concurrent matter does not necessarily preclude states laws on the same matter; however, the state power to make law with respect to those on the concurrent legislative list is subject to the “doctrines of inconsistency and covering the field”.he meaning of this is that, the state law must not be in conflicts with the federal law on the same item. And to determine conflict according to professor Nwabueze (1983), legislation on concurrent list must therefore first be made by both governments before any question of inconsistency between them can arise, and only then can a compromise be made to see if one has conflicted with the other.
Local Government Taxing Power
The Local Government Reforms of 1974, Local Governments in Nigeria transformed from mere administrative units status to a constitutional establishments. Under section 7(1) of the 1999 constitution of the F R N the arms local government by democratically elected process is guaranteed Therein, every state government is man-dated to ensure their existence under an applicable law that regulates their establishment, structure, composition, finance and functions.Today however, the status of the local government has been enhanced. And, the enhanced status of the local government councils has raised the question whether or not they have independent power to raise own taxes. The division of legislative power under section 4 for the constitution involves only the federal and state governments. Also, it will be observed that matters that the constitution mandating the state governments to rest in the local government councils are matters within the residual power of the states. The implication of this is that local governments have no legislative power of their own and cannot impose any tax on any subject matter whatsoever. Therefore, it is instructive to note that the provisions of schedule 4 of the constitution do not directly rest the local government councils with power to collect taxes. To this extent, the local government councils were brought within the federal structure of the distribution of taxing powers and functions. However, these councils are not given any direct legislative powers under the constitution but are made to loop up to the Federal and State Government for their sustenance, via statutory allocations as stated in section 7 (6) (a) & (b) and section 162 (5) (8) of the constitution FRN.
Furthermore, in getting these statutory allocations, a state government must first enact appropriate enabling law, which will determine the taxable persons, assessment procedure and method of collection, recovery and penalties for tax delinquency. And where such a law has been enacted, a local government council must exercise its power within the limits prescribed by the law; any exercise of power beyond the units allowed by the constitution or the enabling law according to the court in Shell Petroleum Development Company of Nigeria Limited Vs Burutu Local Government Council, will be ultra vires, null and void. However, notwithstanding the lack of clear taxing power for the local government in the Nigerian constitution, since section 7(1)of the Nigerian constitution guarantees the system of local government, for their sustainability and running of the local governments, the local government council is allowed to generate revenue through the levying of certain categories of rates to wit, the collection of radio and television licenses, establishment of cemeteries, burial grounds, licensing of bicycles, trunks, wheel barrows and carts, establishment, maintenance and regulation of slaughter house, slaughter slabs, motor park, naming of roads and streets , registration of births and deaths etc. All these functions are specified in the fourth schedule of the Nigerian Constitution. Based on the foregoing there appears to be lop-sidedness in the distribution of taxing powers as well as revenue formula of the Nation, however it is instructive to point out that all tax revenues collected by the federal government are not wholly retained by it. Rather according to Sanni(2002), the taxes collected by the Federal Government are paid into the federation Account and distributed among the federal, states and local governments pursuant to section 162 (2) of the 1999 constitution.
EXAMPLE OF TAXES COLLECTED BY THE THREE TIERS OF GOVERNMENT
Taxes Collected by the Federal Government
1. Companies income tax.
2. Withholding tax on companies, residents of the Federal Capital Territory, Abuja and non-resident individuals.
3. Petroleum profits tax.
4. Value added tax.
5. Education tax.
6. Personal income tax in respect of
(a) Members of the armed forces of the Federation.
(b) Members of the Nigeria Police Force.
(c) Residents of the Federal Capital Territory, Abuja; and
(d) Staff of the Ministry of Foreign Affairs and non-resident individuals
Taxes and levies to be collected by the State Government
1. Personal income tax
2. Withholding tax (individuals only)
3. Capital gains tax (individuals only)
4. Stamp duties on instruments executed by individuals.
5. Right of Occupancy fees on lands owned by the State Government in urban areas of the State.
11. Market taxes and levies where State finance is involved.
Taxes and Levies to be collected by Local Government
1. Shops and, kiosks rates
2. Tenement rates
3. Slaughter slab fees.
4. Marriage, birth and death registration fees.
Critic and solution for taxing power
The Nigerian tax system favours the federal government, which controls the buoyant tax components while the lower tiers have jurisdiction over the less profitable ones. Example is value added tax (VAT) where states are mere agent and collectors, remitting all to the federal government through the inland revenue service, petroleum profit tax, companies income tax are all controlled by the federal government. It is clear that the intention of the constitution is to create a division in administration and collection between the federal, state and local government to make it less complicated and the language to be clear, what the constitution fail to do is make the sharing of taxing powers to be equal among them. These did not reflect the true federalism that we are claiming to have, too much attention is given to the centre because they consolidated all the power to the federal government.
With regards to taxing power local government are virtually rendered useless, they are not given the any legislative function on tax matters except what the state government delegated to them. They are left in the mercy of the state government while the federal government are controlling all the lucrative taxes in Nigeria. The only solution to make Nigerian tax system more enforceable and effective apart from other issues we have i.e. poor administration, untrained officer, lack of records and poor management, the taxing poor should be shared equally between the three tires of government and make it equitable, so any level of government will be more independent, innovative and should no longer dependent on the federal government for allocation.
CONCLUSION
The Federal Taxing power is stated in the section 4 (2) of the constitution of the Federal Republic of Nigeria. And, the items outlined therein are called the Exclusive Legislative list. These lists are contained in the second schedule of the constitution. Not only that item 59 of the exclusive legislative list also vested powers on the federal government on some sorts of taxes pursuant to which the personal income tax, companies income tax and others are taxed. Furthermore, states taxing powers basically are on the items in the concurrent list and others not clearly mentioned either in the Exclusive or current lists. In nut shell while the state taxing powers are open-ended that of the federal government can be specifically be enumerated. In conclusion, though constitutionally, the local government can generate fund by itself but the third arms of government in Nigeria does not have any clear or concrete constitutional taxing power. This is so because according to Section (2) of the CFRN, Nigeria shall be a federation consisting of states and a federal capital territory, which means that only the state and federal authorities can levy tax.
By
Abdulkadir Muhammad
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